When grain prices get really low and margins are tight, producers are faced with tough decisions. Some might even have a hard time paying their bills this year.
What should you do if you don’t have enough cash to satisfy outstanding debts? Who should you pay first? How can you get more time? The short answer: It depends.
Financial crises are always unique, so they require customized solutions, says Bob Milligan, a senior consultant with Dairy Strategies. Following a few key steps, though, will help you survive those challenges without robbing Peter to pay Paul.
First, face reality head-on.
“When you get into these kinds of situations, you’re pretty frustrated and pretty down,” Milligan points out. “It’s really easy to procrastinate, but you can’t.”
Next, determine if the issue you face is a short-term or a long-term problem.
Lack of normal cash flow is one example of a short-term problem resulting from unusually low commodity prices, Milligan says. If you find yourself facing this scenario, take the following steps:
1. Don’t stop paying your bills. You have to continue making payments, Milligan says. It’s also a good idea to openly communicate your situation with creditors. “I don’t think you should ever not pay someone,” he says. “The first thing you should do is talk to them.”
2. Find more cash. There’s still a lot of old-crop owned by farmers,” says says Ryan Bristle, an Iowa corn and soybean farmer and consultant with Russell Consulting Group. “The easiest way to generate cash right now is to sell it.” Another option is to sell idle machinery, Milligan says. He recommends farmers develop a list of assets they could sell for quick cash.
3. Talk to your lender. “If this is a short-term problem, the lender may be willing to help convert some loans to interest-only for a (limited) period of time,” Milligan says. The other possibility is to roll short-term loans into medium-term loans, reducing monthly payments.
4. Prioritize your payments. Identify what you are contractually obligated to pay, Bristle adds. Pay those obligations first. Then, it’s important to pay down higher-interest debt in the short term. “We really want to look at it from a cash-flow standpoint,” Bristle says.